Day: September 11, 2021

caricature, imagination, hand drawing

Q1Y1: Nifty Option Trades need more introspection

It is time for introspection. This is a business and will be reported as such on my ITR as well. I am expected to make advance tax payments also every quarter. Thus, 13 weeks is a logical time to take a pause and look back at what I have done.

The 13 weeks of trading correspond to following candles on weekly timeframe.

And the following is a representation of result:

The correlation is crystal clear. The returns were good when market was consolidating during the months from April to July. As the market went in uptrend in week of August, I was never quite in control of situation. Even though profits were posted in 10 out of 13 weeks, the 3 loss making weeks were good enough to wipe out all the gains.

There is a saying: “Option sellers eat like chicken and shit like elephant”

I ended up vindicating that saying, even though I knew this problem all along. It is for this reason that I have kept my target CAGR at 15% for the time being. The idea was that if I am able to beat this target, I will raise it up. For the time being, I have failed to achieve target. The next step is to aggregate my learning and trade better from now on.

So I learnt:

  1. Make strike adjustments whenever gap-up / gap-down happens
  2. Check charts twice a day
  3. Keep SL-M orders
  4. Keep taking as many SLs as warranted
  5. Keep charts tidy
  6. Be mindful of candle behavior across timeframes
  7. Roll-in strikes aggressively during trending market but not more than adjusted ATR during consolidating market
  8. Stop counting money
  9. Pre-empt SL positions and close them early (simple to say, tough to do)
  10. Exit positions when volatility compresses a lot

Last week, I realized that I should be doing iron condors instead of strangles. I earlier used to think that brokerage and cost of hedges would not compensate for additional gains via more lots. I think that theory is wrong and deserves a trial. If theory holds true, I would effectively be multiplying my gains by 1.5 to 2 times. That would be a huge boost to CAGR. I would be testing the theory in coming weeks.

But the whole point was to trade in direction of market. That is written loud and clear on my website’s home page. Yet, I ended up taking positions on both sides. The urge to eat laddoos on both sides needs curbing. I must respect trending market and stay directional.

Also, I need to stop sharing these posts here and there. I may not acknowledge consciously but my subconscious mind is asking me to keep this website as a log only. I am not gaining any feedback by sharing posts anyway. While log is an absolute must as it helps me in bringing clarity to my thoughts, the log deserves solace at least for now.

step, path, shoes

Sep21-W2: Time to move on

The entire objective of this week was to compensate last week’s loss of Rs. 11,500 and make some more if possible. The objective was noble but the methodology was abject. I myself knew that the momentum was tremendous and was not confident of mean reversion happening soon.

As my fears started becoming reality, the next resort was to hold on. Basically, I went into an unchartered territory. I was not trading anymore. This was sheer gamble. Either I was going to recover everything or lose a lot.

The writing on wall started going in favor of latter. By Tuesday morning, I was sick and tired of this trend. I have seen such scenarios earlier so many times. ITM options bleed money like a deep cut on forearm. I now had unrealized loss of close to Rs. 30,000. I knew I needed to close the position.

It was around 1030 when Nifty made the day low and my position was showing a loss of Rs. 3000 to 5000. The temptation to break-even was so high that I ignored the risk of pullback. Due to office calls, I was not able to completely focus on charts anyway.

The market pulled up fast and how. It made day high and I admitted defeat. The swing of emotions and money was too much to take. I booked a loss of over Rs. 35,000. I informed my wife who responded by saying: “So it is ok not to book loss of 3,000 and even better to book loss of 30,000?”

I did not have answer to the question. How could I tell her that I was gambling and I did not have a plan B if things went wrong? Having positions on the other side of trend can only be managed by averaging out. And I did not have the funds to do all that.

Eureka!! Spreads. I sold ITM call option spreads and found that only 25% of capital was being used. I could now do averaging if market still went against me. Fortunately, there was no need for it as Nifty fell a bit on Wednesday and I managed to recover around Rs. 25,000

Eventually, I ended the week in loss but not all is lost. Amidst all this commotion and despondency, I have realized that I need to use hedges to make the maximum of margin availability. I am super excited to trade iron condors and option spreads from next week. Let bygones be bygones. It’s time to move on.


Sep21-W2: Nifty Option Trades could not recover last week loss

This trend is not my friend. As I was carrying ITM positions, Friday’s gains made my P&L go redder. The problem continued on Monday and I started to panic. My unrealized P&L was crossing Rs. 30,000. Forget last week’s loss, I just wanted to breakeven on this unrealized loss now. On Tuesday, I was only at hairline difference of that breakeven moment when the market reversed and again went back to high. At that point, I gave up and booked loss of around Rs. 35,000. I checked charts and figured reversion is not done yet. I sold some ITM call spreads and recovered whatever I could. Damage to P&L continues.

So I sold OTM strangles and call spreads from Sep 3 to Sep 9 whose daily candles were like this:

Here are the results:

Net Profit (after deducting brokerage)Capital deployed (approx)Week’s ROIAnnualized ROI for this weekTotal no. of weeks traded till todayAnnualized  return till today
Rs. -3,023.65Rs. 7,55,676-0.4%-18.82%133.64

The following is breakdown of week’s positions

DISCLAIMER: I am not a SEBI registered adviser. All the information provided on this website is for educational / informational purposes only and should not be taken as investment advice.